Sell or refurb? Tax implications

Brooktop

I'm in a bit of a pickle! I rent out a house I used to live in. The current tenants have done a midnight flit, owing me money and have left the place in a disgusting state. It needs to be professionally cleaned, have new carpets and decorating as well as repairs to doors, new kitchen etc.

I'm thinking that I don't want the hassle of renting anymore. The estate agents have advised that I get the place cleaned but leave all the other work - because buyers like the idea of buying a place that they can do up and get at a below market price. I guess it would cost me about £3k just to do it up to state where people could walk in and net feel repulsed...but then people like to make it their own anyway don't they?

If I did decide to sell and spend the money on a refurb, is the money I've spent off-settable? Because I had rent throughout 2007/8, I've made a profit - but because these refurbs will now be carried out in the 2008/9 tax year, I'll have no rental income to offset against this. Or am I still allowed to offset it against the income from my salary?

If not, can it be deducted from the amount of Capital Gains Tax that I'll be subject to? Thanks for looking.

Doozergirl

Refurb costs can be offset against Capital Gains.

moneysavinmonkey

if the refurb is required due to damage by the ex tenants are you not able to recover the costs from them.. if not then it can be recovered from your landlords insurance??

Brooktop

Unfortunately the tenant was Polish and although I have a copy of his passport, I'm not hopeful about 'chasing him'. I've tried calling the Home Office...but gave up after 20mins of waiting on the line.

I don't have any landlord's insurnace.

moneysavinmonkey

why didn't you have any insurance!! :eek:
is that allowed??

theoretically if you have this guys genuine passport you should be able to track him down.. probably going to be a very long, laborious and costly process, not sure the home office is really the best place to start?! I guess as well there is no guarantee that you ex tenant would even have any money to pay you with.

Just have to offset the cost of the repairs from your profit when you come to sell. = reduces your capital gains tax liability.

Icey77

moneysavinmonkey wrote: »

why didn't you have any insurance!! :eek:
is that allowed??

Don't know if it's allowed or not ... but I didn't have any until I found out about it on this forum. I've got it now

silvercar

The only compulsary insurance is buildings insurance and that is only compulsary if you have a mortgage on the property.

If the refurb costs are accepted by the revenue as such they will be allowable against any CGT bill. If they are counted as maintenance then they can be put against any rental income. They cant be offset against your earned income but they can be offset against unearned income. If you have none then they would be carried forward as losses to offset future unearned income in future years.

mlz1413

I'm not surprised you didn't have LL insurance but you should have buildings insurance, it will depend on the policy and the damage as to weather you can put in a claim but it's well worth asking.

I know I keep repeating this in many of my posts but it's a really good idea to get a guarantor! This is a perfect example if the Polish guy had a guarantor in Britian then you could chase them for the cost of damages and lost rent, if they don't have anyone in Britian who will voucher for them then it's a good idea to either take extra deposit or get a different tenant.

Re spending £3k to make the place saleable what does this cover?
Asking as I bought a house 2 years back that was disgusting (I was surprised it had been lived in only weeks before I first saw it) but the price was right and as I was about to rip everything out (flooring, wiring, c/h etc) the mess wasn't an issue.

Brooktop

Thanks for your help. I wasn't even aware of landlord's insurance. I have buildings insurance though. I never really wanted to be a landlord tbh, I couldn't sell my first home so decided to rent it out...and it's just run on! I do get an annual gas inspection.

I first used a couple of agencies.. but both were useless. Other people I know that have rented their properties have also had problems. Working just 5 mins from my home, I thought it would be better (and cheaper) to look after it myself.

Anything else I've been missing.

Brooktop

I was initially contacted by a lady who purported to be looking after the interests of Polish immigrants and recommended a gentleman. He paid upfront and gave an extra month as a bond. The first tenant moved out after a year or so....but asked if another friend could take over. A year later, this guy asked if he could move out and another Polish friend take over. This was never my preferred option, but...the rental market isn't brilliant in Nottingham and the house isn't in the best of areas. Previous tenants (young graduates) had given me some grief and often been late with rent. The Polish lodgers always paid rent on time and never gave me grief.

Turns out that, at least the first and last tenants were never even living there. The scam is that, they pay you but then sub-let to other Poles (I guess there were about 10 of them in there!!). Last time I checked the house about 4 months ago, it was in an ok state. I'm trying to be philosophical about it all

I know it's a long shot, but is there any 'agency' that can give me advice? If it's a case of incurring legal costs on the slim chance of chasing him, I'm not going to bother.

mlz1413

I know where your coming from Brooktop! had one lot of Polish tenants they were very clean and the flat was given back the way it was taken on but then they were only there 2 months!

As it sounds like you house is now in need of total re-refub I would just empty the rubbish out of it and put it up for sale. If you can afford to put it up for a bargain price and insist on quick completion only.